Reform agenda for 2017: Overview and country notes - …€¦ · Reform agenda for 2017: Overview...

Economic Policy Reforms 2017

Going for Growth

@ OECD 2017

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Chapter 3

Reform agenda for 2017:Overview and country notes

This chapter presents the country-specific policy priorities and underlyingrecommendations to achieve high and inclusive growth. It starts by reviewing howcountries rank in terms of GDP per capita and income inequality. This is followed bya cross-country examination of Going for Growth recommendations by policy areas.The chapter ends with individual country notes, which provide a rationale for theselection of the five policy priorities in terms of the performance weaknesses they areintended to address, as well as concrete recommendations to remedy the perceivedshortcomings in the related policy area. Each OECD country is covered, as well as theEuropean Union as a whole. There are also country notes for a number of non-OECDcountries such as Brazil, Colombia, the People’s Republic of China, India, Indonesia,Russian Federation, and South Africa and, for the first time, Argentina, Costa Ricaand Lithuania.

The statistical data for Israel are supplied by and under the responsibility of the relevant Israeliauthorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights,East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

3. REFORM AGENDA FOR 2017: OVERVIEW AND COUNTRY NOTES

ECONOMIC POLICY REFORMS 2017: GOING FOR GROWTH @ OECD 2017110

IntroductionThis chapter presents the Going for Growth policy priorities and underlying

recommendations to achieve high and inclusive growth. In doing so, it summarises the

information laid-out in the individual country notes reported at the end of the chapter. The

cross-country dimension of Going for Growth reflected in this chapter facilitates the transfer of

knowledge about domestic policy reforms, allowing for lessons to be drawn from successes

and failures. At the same time, the selection of country-specific policy priorities and

recommendations detailed in individual country notes allows for domestic considerations,

such as differences in income levels, institutional capacities and the stance of macro policies,

to be taken into account, avoiding thereby “one-size-fits-all” policy prescriptions.

In this year’s publication, the country notes have two new features. First, the policy

objective of boosting growth is now accompanied by the complementary goal of making it

more inclusive, as discussed in Box 1.2 of Chapter 1 and in Chapter 2. This is reflected in the

country notes, where concerns about inclusiveness and in particular inequality

developments are also explicitly discussed, with additional tables and figures introduced to

show recent trends.

Second, to ensure that priorities do reflect the most pressing challenges faced by

countries, some of the previous priorities have been left out from the top five, even if

insufficient progress has been achieved. This is to allow for the introduction of new priorities

in areas that are seen as most pressing and likely to have a more significant influence on

inclusive growth. Such cases are highlighted in the introductory section of the country notes,

where it is also emphasised that, in some cases, even if these priorities are no longer among

the five most pressing challenges, there is still a need for additional policy action.

GDP per capita and inequality differences across countriesGaps in GDP per capita relative to the average of the upper half of OECD members can

be decomposed into contributions from hourly labour productivity and labour utilisation

(Figure 3.1). What stands out from this accounting exercise is the strong link between the

cross-country dispersion of income per capita and that of labour productivity, and the

weakness of the link with labour utilisation. The decomposition reveals different groups of

countries:

● Top and bottom income countries: For both top income countries and the dozen or so countries

with the lowest levels of GDP per capita, the difference vis-à-vis the average of the upper-

half is accounted for mostly by labour productivity.

● Average income countries with offsetting gaps: Most of the average income countries can be split

into two groups. In the case of many northern European countries (e.g. Belgium, Denmark,

France, Germany and the Netherlands), relatively high productivity is offset by low labour

utilisation.1 The opposite pattern holds for countries outside Europe (e.g. Australia, Canada,

Japan and Korea), as well as for some Nordic countries, Austria and the United Kingdom,

where labour utilisation above the average is offset by low productivity.


ECONOMIC POLICY REFORMS 2017: GOING FOR GROWTH @ OECD 2017 111

Figure 3.1. Differences in GDP per capita are mostly accounted for by productivity gaps,1 2015

1. Compared to the weighted average using population weights of the 17 OECD countries with highest GDP per capita in 2015 based on2015 purchasing power parities (PPPs). The sum of the percentage difference in labour resource utilisation and labour productivity donot add up exactly to the GDP per capita difference since the decomposition is multiplicative. Labour productivity is measured as GDPper hour worked for OECD countries and as GDP per employee for non-member countries. Labour resource utilisation is measured asthe total number of hours worked per capita and as employment as a share of population for non -member countries. In the case ofLuxembourg, the population is augmented by the number of cross-border workers in order to take into account their contribution toGDP. Data refer to GDP for mainland Norway which excludes petroleum production and shipping. While total GDP overestimates thesustainable income potential, mainland GDP slightly underestimates it since returns on the financial assets held by the petroleumfund abroad are not included.

Source: OECD, National Accounts, Productivity, Employment Outlook and Economic Outlook Databases; World Bank, World DevelopmentIndicators (WDI) (Database); ILO (International Labour Organisation), Key Indicators of the Labour Market (KILM) Database foremployment data on Brazil, Colombia, Indonesia and Latvia; Statistics South Africa for employment data on South Africa; India NationalSample Survey (various years), annual population estimates from the Registrar General and OECD estimates for employment data onIndia; China Ministry of Human Resources and Social Security for employment data on China.

1 2 http://dx.doi.org/10.1787/888933454870

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● Countries with both gaps: for some Eastern and Southern European countries (e.g. Greece,

Hungary, Italy, the Slovak Republic and Spain) and for Turkey, gaps in GDP per capita are

explained by gaps in both labour productivity and utilisation.

The fact that productivity is the main driver of growth in the long run should by no means

reduce the relevance of labour utilisation-enhancing reforms, in particular to facilitate the

participation of under-represented groups in the labour force and to tackle labour insecurity

(see Chapter 2). In addition to helping close gaps and bringing higher levels of GDP per capita,

a job-rich growth would contribute to achieve other objectives, such as reducing income

inequalities and promoting a more inclusive society, as growth through labour utilisation gains

tends to benefit disproportionately the bottom of the income distribution (Hermansen et al.,

2016). It would also contribute to improve the situation of youth, whose bleak labour market

situation (Figure 3.2) remains the most negative and enduring legacy of the recession and the

subsequent weak recovery despite some slight recent improvement.

The degree of income inequality also differs significantly across OECD countries. Such

differences can be highlighted by analysing summary indexes of dispersion (the best known

of them being the Gini index) of the underlying income distribution. Examining gaps in Gini

indexes vis-à-vis the upper-half of the most equal members of the OECD (Figure 3.3, Panel A)

reveals:

● Cross-country differences are large, with the group of least equal countries (Chile, Mexico

andTurkey) having a gap generally twice as large as the most equal countries (e.g. Denmark,

Iceland, Norway and the Slovak Republic).

● When considering additional inequality measures, trends since the onset of the crisis

diverge for some countries, highlighting that inequality movements did not operate in the

same way for all countries (Figure 3.3, Panel B). While in most cases an increase (resp.

decrease) in the Gini coefficient has been accompanied by a decrease (resp. increase) in the

Figure 3.2. Employment rates remain below their pre-crisis levels,especially for youth and low-skilled

As a percentage of population in the same age group, OECD average

1. Refers to 25-64 year-old workers.Source: OECD, Education at a Glance Database.

1 2 http://dx.doi.org/10.1787/888933454887

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share of national income accruing to the poorest 20%, for some countries where overall

inequality has increased according to the Gini coefficient, the share of income held by the

poorest 20% remained stable or even increased (Australia, Mexico). Conversely, in some

countries where overall inequality has decreased, the share of income held by the poorest

20% also decreased (e.g. the Netherlands, Norway and Portugal).This reflects the granularity

of challenges faced by countries to tackle inequality and promote inclusive growth.

Overview of policies to enhance labour utilisation

Making the labour market more gender inclusive

Although recent progress has been achieved, gender gaps are still large in many OECD

countries, both in terms of labour force participation and earnings (OECD, 2016a). Achieving

Figure 3.3. The degree of income inequality differs substantially across countriesPercentage gap compared with the upper half of the distribution, 2013

1. For the Gini coefficient, data refer to 2014 for Australia, Finland, Hungary, Israel, Korea, Mexico, the Netherlands and the United States,2012 for Japan. For GDP per capita, data refer to 2014.

2. Change over 2008-14 for Finland, Israel, Korea, Mexico, the Netherlands and the United States; 2007-14 for Hungary, 2007-13 for Turkey;2009-12 for Japan; 2008-12 for New Zealand.

Source: OECD, Income Distribution, National Accounts and Productivity Databases.1 2 http://dx.doi.org/10.1787/888933454893

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B. Share of income held by the poorest versus Gini coefficientChange in percentage points, 2008-13²

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greater gender equality would increase long-term growth and would make it more inclusive,

both in OECD countries and in emerging economies (see also Chapter 2). It would also help to

partly offset the impact of ageing on labour market participation across OECD countries.

Hurdles in the labour market and difficulties associated with reconciling work and family

life often mean either exclusion from the labour market or involuntary part-time work

for women. While significant actions have been taken in this area (see Chapter 1),

recommendations are made to further enhance female labour force participation and full-

time jobs opportunity, and to help parents balance work and family responsibilities

(Table 3.1).

A key recommendation in Going for Growth is to increase the provision of childcare

facilities. Differences in the availability of affordable, high-quality childcare is an important

factor explaining cross-country varied performance in women’s labour market participation

(OECD, 2012a). This is an area where the scope for progress and potential pay-off is

particularly high in emerging economies (Mateo-Diaz and Rodriguez-Chamussy, 2013).

Attendance to pre-primary education also decreases the likelihood of low performance in

secondary education, even after controlling for socio-economic factors (OECD, 2016b). Thus,

facilitating access to good quality childcare can offer the double dividend of encouraging

greater female labour participation and mitigating social inequalities. Improving access to

childcare facilities for the most disadvantaged families, including those of immigrant

background, refugees and minorities (see below), is therefore recommended in many

countries (Germany, Belgium, Switzerland and Luxembourg). Quality standards should also

be monitored, improved and kept uniform across the system, so that the equalizing effect of

investing in childcare can be achieved.

The disincentives embedded in tax and transfer systems are another barrier to full-time

employment. For example, disincentives to work should be removed for second earners or

lone parents (Austria, Germany, Japan, Luxembourg, the Slovak Republic and Switzerland), as

well as disincentives to move from part-time to full-time work (Austria). Family benefits

should also be better designed and targeted (e.g. Czech Republic or Slovenia). Promoting

more gender-equal parental leave systems is also fundamental to closing gender gaps.

Introducing paid parental leave (United States), facilitating its take-up (Korea) or encouraging

a higher incidence of paternity leave (Czech Republic and the Slovak Republic) are

recommended, depending on country specific circumstances.

Aside from these policies directly aimed at facilitating the access of women to the labour

market, reforms in other policy areas would also help achieve this objective. Implementing

corporate governance codes establishing gender goals in management can contribute to

enhance diversity and improve economic outcomes (Argentina and Switzerland), as

exemplified by Norway, the pioneer in using gender quotas for corporate boards (Sorsa, 2016).

Fostering active labour market policies would also contribute to close existing gender gaps,

as women tend to benefit most from them (Bergemann and Van den Berg, 2008). In the same

Table 3.1. Recommendations to make the labour market more gender inclusive

Expand access to quality childcare ARG AUS AUT CHE CHL COL CRI CZE DEU EST JPN KOR LTU LUX MEX NZL POL SVK TUR USARemove tax and benefit disincentives AUT CHE DEU JPN LUX SVK SVNIncrease access for childcare for immigrants/refugees/minorities BEL CHE DEU LUX NZL

Improve parental leave policies CZE FIN KOR SVK USAImplement corporate governance code/quotas ARG CHEAlign the official retirement age for women with that for men AUT CHE



vein, women tend to be more impacted by labour market dualism (e.g. Korea and Japan),

segmentation and informality (e.g. Costa Rica), and thus would benefit most from policy

action in the areas of job protection and taxation. Finally, female labour market participation

is also influenced in several countries by prevailing social norms concerning the role of men

and women towards work and care. Hence, bringing gender issues into the public debate

through information campaigns, which is recommended for Argentina, would help to raise

awareness for the existence of gender inequalities and for the potential benefits of a more

gender-inclusive society.

Integrating migrants and minorities

The share of the foreign-born population has increased significantly across the OECD,

reaching now nearly 10% of total population. Second-generation immigrants are also

numerous and heterogeneous and several OECD countries host sizeable minorities, such as

Roma or aboriginal populations. At the same time, refugee flows have recently increased

significantly, especially to European countries. This increasing population diversity can bring

significant economic and social benefits to OECD countries, such as helping to offset ageing

effects on labour participation. The realisation of these benefits will depend largely on the

design and implementation of integration measures. Going for Growth recommendations in

this area range from measures to promote short-term labour market integration to early

action in education and social domains that could facilitate labour market integration in the

future and reduce inequality of opportunity overall (Table 3.2).

Particular attention is needed in the initial stages of education. Participation in early

childhood education and care programmes among immigrant children is considerably lower

than among native-born workers (OECD, 2015a). At the same time, immigrant students who

participated in early childhood education programmes scored 49 points higher in the PISA

reading assessment than immigrant students who did not attend (OECD, 2015a). This

difference corresponds to one extra year of education. Hence, efforts to promote and

facilitate the use of childcare facilities by immigrants (e.g. Belgium and Switzerland),

refugees (e.g. Germany), minorities (e.g. Slovak Republic), and a better targeting of early

childhood education for groups with low participation (New Zealand) are recommended.

While attendance to early childhood education is key to reducing language handicaps, action

is also needed in primary and secondary education, where language proficiency should be

assessed systematically and additional language acquisition support provided when needed

(e.g. Belgium and Germany). Ensuring that immigrants and minorities are integrated in

mainstream schools (Germany), while targeting more resources to disadvantaged schools

(Slovak Republic), is also recommended.

Table 3.2. Recommendations for the integration of immigrants, refugees and minorities

Provide language acquisition support BEL DEU DNK EU SWEImprove training DEU DNK LVA SWEExpedite recognition of skills/qualifications BEL DEU SWEImprove information/monitoring of the situation of minorities AUS NZL SVKImplement strategy for integrating second generation into the education system DNKIntegrate refugees in mainstream schools DEUStreamline immigration processing and improve visa programmes DNK



Across the OECD, immigrants tend to be at a higher risk of being overqualified than

native-born workers, i.e. they are more likely to be educated beyond what is necessary for a

job (OECD, 2012b). High over-qualification rates imply risks of entering a cycle of brain gain,

waste and drain, whereby OECD countries could be initially successful in attracting highly

qualified workers, but they are unable to fully utilise their human capital, which depreciates

over time. Eventually those workers are likely to move to a third country or return home.

International experience suggests also that, across countries, about one-third of immigrant

over-qualification rates can be explained by weaker linguistic skills (Bonfanti and Xenogiani,

2014). Therefore, increasing support for language training for adults (e.g. Sweden, the

European Union), along with facilitating training (Germany, Denmark and Latvia) and

promoting fast-track recognition of professional qualifications gained abroad (Germany and

Sweden) would contribute to making the most of immigrant workers and would facilitate

smoother integration into the labour markets as well as raising productivity.

These policy recommendations are also pertinent for minorities, whose weak

educational outcomes hinder their access to the labour market (Slovakia). More generally, it

is also recommended to improve the information available and to assess more thoroughly

the situation and challenges minorities face (New Zealand and the Slovak Republic), so that

adequate policies can be deployed to narrow existing gaps in socio-economic opportunities

and outcomes, including in the health area.

Strengthening social benefits and active labour market policies

Giving people help and support to access good jobs is essential to foster inclusive

growth. Unemployment benefits, social protection and active labour market policies are

aimed at providing income support during unemployment spells and facilitate the return to

work via job-counselling or training. In addition to contributing to raising employment rates,

they help to achieve a better matching of workers and skills, and hence can improve resource

allocation (Andrews and Saia, 2016) and productivity. Hence, previous issues of Going for

Growth have emphasised the need for further progress in this area. Reforms in these areas

have overall lost steam, which raises some concerns given the high youth and long-term

unemployment rates. Thus, more efforts are needed (Table 3.3).

As regards activation policies, many countries need to boost resources (Argentina,

Estonia, Greece, Israel, Latvia, Lithuania, Slovenia, South Africa, Spain and the United

Kingdom) and improve efficiency (Spain, Italy, United Kingdom and Netherlands). This is

particularly important in countries with high and sustained long-term and youth

Table 3.3. Recommendations on active labour market policies and social benefits

Active labour market policiesIncrease spending on activation ARG ESP EST GBR GRC ISR LVA LTU SVN USA ZAFExpand some specific programs (e.g. for the long-term unemployed) ESP GRC HUN IRL JPN KOR NZL USA ZAFImprove efficiency of activation policies ESP GBR ITA LUX NLD SVK SVNFocus on key risks groups EST FIN FRA ISL NLD SVN TURBetter enforce mutual obligation IRL FIN FRAImprove coordination between different government levels ESP ITA LVASocial benefitsRestructure benefits to increase work incentives FIN IRL ISL LVA LUX NLD SVN ZAFImprove targeting BRA IDN IRL ITA LVA LUX SVN USAExpand the coverage of social benefits CHN GRC JPN LTU LVAEliminate regressive subsidies ARG IDN



unemployment rates, and also in countries where large segments of the population are

facing important difficulties to access the labour market. Recommendations typically

include improving the co-ordination between the different levels of government involved in

the administration, financing and delivery of labour market policies (Italy, Latvia and Spain),

and focusing on key risks groups such as young or displaced workers (Estonia, Finland,

France, Netherlands, Turkey and Slovenia). There is also a need to expand some specific

programmes, which have been found to be particularly effective in improving employability

(Ireland). For that it is fundamental to put in place sound and systematic evaluation of

policies (Spain). Evaluation of labour market programmes is well established in some OECD

countries, but other countries should take more concrete steps in this field.

Activation policies have been found to be most effective when they are based on the

mutual obligation principle, whereby the unemployed receive income and employment

support while in return they are required to participate actively in job search and training

(Martin 2000; Kluve 2006; OECD, 2015b). Consequently, countries should continue their

efforts to reinforce the mutual obligation approach, for example by enforcing more

systematically mandatory job-search and reporting requirements (Finland, France) or by

defining more clearly what is considered a suitable job offer (Ireland). In the same vein,

restructuring unemployment benefits so as to better support the return to work remains a

prevalent recommendation. This includes withdrawing benefits more gradually when low-

income earners take up job (Ireland, Latvia) or tapering unemployment benefits along the

unemployment spell (Finland, Luxembourg).

Some countries need also to continue increasing the coverage of social protection,

which is generally under-developed. Greece is recommended to fully implement a

guaranteed minimum income scheme along with school meal and housing assistance

programmes targeted at the poor, while Japan and Korea need to increase the coverage of

social protection, as the incidence of labour market duality results in a substantial

proportion of the workforce (often those on fixed-term contracts) being currently not covered

by the system. Increasing social protection is also important as a way to fight informality. If

well designed, extending social protection would contribute to better labour outcomes by

increasing the incentives and the feasibility to move to the formal sector, both for the overall

population (Chile and Indonesia) and for specific groups (such as older workers in Turkey). In

some cases, poorly designed subsidies should be phased out and replaced by targeted

transfers to the poorest segment of the population (e.g. Argentina). India is implementing a

subsidy reform, replacing several price subsidies by cash transfers. Such an approach should

be extended to other subsidies, in particular food, electricity and fertiliser subsidies.

Reforming retirement and disability schemes to reduce premature withdrawalfrom the labour market

For several years before and after the crisis, pension reform has been high on the agenda

of many governments. Countries have launched significant reforms, including raising

retirement ages, amending the way entitlements are calculated and introducing measures to

generate savings in their pension systems. The crisis has been a major accelerator of such

reforms, not least reflecting the pursuit of fiscal consolidation objectives as well as financial

market pressure to signal commitment for debt sustainability (OECD, 2013a). It is therefore

not surprising that, after these efforts, the need to implement pension reforms in order to

encourage a longer working life is waning. Accordingly, for this issue of Going for Growth, only a

few countries have a priority in this area (Table 3.4), and the most common recommendation



is to tighten some early exit routes from the labour market (Luxembourg, Poland, Slovenia

and Turkey) in order to raise older workers’ employment rates.

The pension system should also ensure sufficient living standards for the elderly in

countries where this group is facing a higher poverty risk than the overall population (Korea).

Likewise, inclusiveness concerns are central for disability benefit schemes, by providing

adequate support for individuals whose health status temporarily or permanently prevents

them from working and searching jobs. However, these schemes can be sometimes misused

and poorly targeted. In such cases, priority should then be given to enhancing the medical

assessment of these schemes to reduce the risk of permanent labour market withdrawal

(Norway).

Lowering average and marginal taxation of income in particular for low-income workers

High average and – in particular – marginal taxes on labour incomes can reduce

individuals’ labour supply and raise unemployment, especially for workers with low

incomes. They can also reduce firms’ labour demand by rising labour costs through

employers’ contribution and payroll taxes. In countries with weak legal institutions,

excessively high social security provisions and tax wedges are also major drivers of

informality, reflecting both labour demand and supply side hurdles. Lowering such taxes

(including through cuts in social security contributions) is a priority for a large number of

countries (Table 3.5), with a particular emphasis on reducing the labour tax wedge for low-

wage workers (e.g. Spain, Italy and Poland).

Reductions in labour taxes are often recommended as part of policy packages aimed at

reducing labour supply distortions sometimes embedded in the overall tax and benefit

system (especially for specific groups of the labour force, for example, low earners and

second earners or lone parents), at improving the efficiency of taxation (see below), and in

association with measures to generate public spending efficiency gains. In some cases they

are also accompanied by recommendations to expand or introduce earned income tax

credits schemes in order to raise the incentive to work and increase incomes at the lower end

of the distribution (Israel, Lithuania and United States). In some non-OECD countries, social

security contributions also tend to be relatively high (e.g. Costa Rica and Lithuania). Reducing

them is seen as a priority, in particular on segments of the workforce, such as low-skilled,

where informality is high.

Table 3.4. Recommendations on retirement and disability policies

Increase statutory retirement age AUT CHE HUN LUX POL SVN TURLimit access to early retirement AUT CHE HUN LUX SVNReview criteria to access disability/sickness benefits AUT ISL NORIncrease portability of pension rigths DEU EUFocus special schemes on elderly with low income KORAdjust pension benefit indexation formula SVNMake continuing working after retirement more attractive TUR

Table 3.5. Recommendations on labour taxation

Reduce social security contributions ARG AUT BEL COL CRI DEU EST FRA HUN ITA LTU TURReduce labour tax wedge for low-wage workers BEL DEU ESP EST HUN ITA LVA NLD POL TURIntroduce or expand EITC ISR LTU USA



Reforming labour market regulations and collective bargaining systems

Job protection and labour market dualism

Over the two decades prior to the global financial crisis, many countries promoted

flexibility in the labour market by easing regulations on non-regular contracts, i.e. contracts

not benefiting from the same degree of protection against termination as permanent ones.

At the same time, the relatively stricter regulations on regular contracts have remained

largely unchanged. This has led to an expansion of non-regular contracts in a number of

OECD countries and to an increase in labour market dualism and segmentation (OECD,

2015b). An excessive use of non-regular contracts can have an adverse impact on both equity

and efficiency. Workers on these contracts tend to be young, face a higher degree of job

insecurity and carry the burden of cyclical adjustments, suffering from longer and more

frequent unemployment spells. This results in skills depreciation and lower productivity.

Firms also tend to invest less in non-regular workers (Cabrales et al., 2015), further

depressing productivity. Moreover, the probability of moving from the non-regular segment

of the labour market to the regular one is low (OECD, 2015b). Thus, non-regular workers tend

to be confined to move from one temporary contract to another while regular workers enjoy

greater protection and job stability.

A number of specific recommendations are made to address this key policy challenge

(Table 3.6). A key recommendation is to increase convergence in protection across contracts

(e.g. Chile, Colombia, Korea, Japan, the Netherlands, Spain and Turkey). Increasing

convergence across contracts, for example in terms of termination cost, would promote

mobility, prevent dualism and lessen inequalities across workers.

Recommendations also focus on dismissal legislation for permanent contracts, either by

improving legal certainty for collective or justified individual dismissals (e.g. India, Japan,

Korea and France) or by reducing severance payments (Indonesia and Netherlands). All these

recommendations should be implemented in tandem with adequate income support for the

unemployed as well as effective job-search counselling and re-employment services. As a

result, Going for Growth job protection recommendations are often formulated as part of

broader labour market reform packages (see Chapter 1), encompassing advice to improve

active labour market policies and social polices – with different emphasis depending on

countries’ challenges and weaknesses.

Minimum wages and wage bargaining systems

Most (26 out of 35) OECD countries have a form of statutory minimum wage, and their

number is increasing, including also in many emerging economies. However, minimum

wage levels and wage-setting mechanisms vary markedly across countries, as do their

coverage and the level of employer compliance (OECD, 2015b). While minimum wages can

have a strong impact on wages at the bottom of the distribution, it is important that they be

set at a level balancing the needs to provide adequate living standards with maintaining or

creating job opportunities in formal sectors for low-skilled workers. Macroeconomic

Table 3.6. Recommendations on labour market legislation and dualism

Tackle dualism and diminish the gap in protection between permanent and temporary contracts CHL COL ESP JPN KOR NLD SWE TURImprove legal certainty for collective or justified individual dissmisals FRA IND JPN KORReduce severance pay IDN JPN NLDReform employment regulations in some industries SWE



conditions and iterations with other policies, such as taxes and benefits, should also be

taken into account. As a result, significant cross-country differences can be observed in Going

for Growth recommendations in this area (Table 3.7).

On the one hand, Korea and the United States are advised to raise the minimum wage

as a tool to raise income at the bottom of the earnings distribution, and to accompany them

with other tax and benefit measures to effectively fight poverty in and out of work, such as

earned income tax credits. On the other hand, in countries with a large informal sector

(e.g. Colombia or Turkey) it is important to avoid that an excessively high minimum wage

level deters the creation of formal jobs. Allowing minimum wages to vary by group (to reflect

differences in productivity or employment barriers) or by region (to reflect differences in

economic conditions) is also recommended. Moreover, simple minimum wage systems are

also most likely to achieve high compliance. Consequently, too complex minimum wage

structures should be avoided (Costa Rica).

The cost of labour can also be driven to levels that are detrimental to employment by

collective wage agreements, which in some countries are administratively extended to

workers and employers who are not party to the original negotiations. Recommendations

emphasise avoiding the automatic extension of wage agreements and promoting wage

bargaining at the firm level in some countries (e.g. Portugal and Italy). Reforms along these

lines increase the responsiveness of wages to labour market conditions and help to preserve

jobs in downturns. Increasing the representativeness of the collective bargaining system or

bringing wage agreement coverage more in line with union membership are also

recommended (e.g. France and Portugal).

Reforming housing market policies to facilitate mobility

Restrictive housing policies such as strict rent regulation can hamper housing

investment and supply and limit labour mobility, thus potentially raising structural

unemployment and reducing the matching between workers and jobs (Adalet McGowan and

Andrews, 2015). They can also discourage capital mobility and contribute to resource

misallocation by distorting the price responsiveness of construction to supply and demand.

Additionally, overly stringent planning and zoning can also entail some financial instability

by raising house price levels and volatility, as well as undermine competition and

productivity in certain sectors such as retail trade (OECD, 2011). However, as in other policy

areas, housing, zoning and planning policies can raise some trade-offs with equity

objectives, such as social housing, which is an important tool to improve access to affordable

housing for the most vulnerable but which can also act as a barrier to labour mobility.

The main recommendations in this area aim at avoiding policy distortions that act as a

drag on labour mobility and productivity, and include (Table 3.8): i) reducing excessive rent

Table 3.7. Recommendations on minimum wage and wage bargaining systems

Promote agreements at firm level and reduce automatic extensions BEL FRA ITA PRT ZAFAvoid a too high minimum wage level and allow for age and regional differentiation TUR COLIncrease minimum wage KOR USAReform/Simplify minimum wage CRI ZAFReduce excess coverage in wage agreements and streamline workers’ representation FRAProvide wage settlements guidelines in line with inflation targets ZAF



regulations, which can lead to a decline in the supply of rental accommodation and to upward

price pressure in urban areas (e.g. Denmark, Netherlands or Sweden); ii) easing planning and

zoning regulations, which prevent agglomeration economies (e.g. New Zealand) or that

housing supply adjusts to demand (e.g. United Kingdom); iii) removing distortions in the tax

system, such as the generous tax treatment of home ownership or interest rates subsidies,

which contributes to labour and capital misallocation (e.g. Luxembourg and the Slovak

Republic) and can increase the risk of housing bubbles (Sweden). To promote greater equality

in housing access, some countries are also recommended to raise the supply of social housing

where clear shortages are identified (Luxembourg and United Kingdom).

Overview of policies to enhance labour productivity performance

Reducing regulatory barriers to domestic and foreign competition

A broad range of firm, industry and macro-level evidence illustrate the impact of

product market regulation on the pace of convergence in productivity levels to

technologically advanced economies. Product market regulation can also affect aggregate

productivity through its impact on the capacity of the economy to allocate capital and labour

resources to fast-growing sectors. Estimates of the potential impacts of product market

reform point to a strong pay-off, with the long-term gains in living standards realised

relatively rapidly2. Moreover, recent empirical evidence suggest that product marker reforms

could be inclusive in that they tend to lift incomes of the household across the distribution,

leaving inequality broadly unchanged (Causa et al., 2016).

Against the background of large productivity gaps despite rapid convergence during the

last decade, all of the non-member countries but Colombia have at least one product market

reform priority. A number of such reforms are targeted at network and infrastructure sectors

where lower-income countries face substantial shortages. Such recommendations are

therefore often formulated in association with increases in infrastructure provision. Despite

progress achieved over the last decade (Koske et al., 2015), product market reforms remain

also a priority for a large majority of OECD countries – in particular European countries. In

the context of near zero inflation, they could facilitate adjustments in unit labour costs and

the reallocation of resources across firms, as well as boost short-term growth and jobs

creation (Bouis et al., 2012). Stronger competition and lower barriers to entry, especially in

services where there is pent-up demand, would help ensure that the protracted period of

wage stagnation in several countries result in lower consumer prices rather than higher

profits as well as in greater job creation in the context of high structural unemployment.

Hence, product market reforms are not only important per se, but also as a necessary

complement to labour market reforms. Moreover, some of these reforms in specific services

can boost short-run demand and create jobs even in a weak conjuncture (OECD, 2016c), as is

currently the case in many OECD countries.

Table 3.8. Recommendations on housing, planning and zoning policies

Ease planning and construction regulations FIN GBR LUX NZL POL SWEReduce/Eliminate preferential tax treatments DNK LUX NLD SVK SWEReduce rent regulation DNK NLD SWEImprove targeting of social housing/subsidies DNK NLDIncrease the supply of social housing LUX GBRReduce housing subsidies DNK



Table 3.9 summarises policy recommendations in the area of product markets.

Streamlining permits and licensing and cutting red tape is needed in many OECD (e.g. Canada,

Greece and Slovenia) and non-OECD countries (e.g. China, India and Indonesia). Introducing or

extending the use of regulatory impact assessments, whereby the positive and negative effects

of regulations are systemically and critically assessed, is also recommended for several OECD

countries (e.g. Greece and Israel). Greater action is also needed to improve bankruptcy

procedures as a way to rehabilitate viable firms and close down unviable ones, allowing

reallocating capital to new and more productive firms (e.g. Italy and Poland). Strengthening

competition frameworks, including competition authorities and regulators, is also

recommended in some OECD countries (e.g. Greece and Hungary) and non-OECD ones

(e.g. Costa Rica). Reducing the scope of public ownership is specifically advocated for some

countries such as Latvia and China, where state intervention is particularly widespread, with

evidence that this hurts efficiency. In other countries where the role of state-owned

enterprises is pervasive in many sectors, it is recommended to improve their governance

(e.g. Costa Rica and Lithuania), for example by adopting the OECD Guidelines on Corporate

Governance of State-Owned Enterprises.

Not only economy-wide but also sector-specific administrative burdens are still a

problem in many countries, and most countries are advised to further reduce sector-specific

barriers to competition. The need to reduce entry barriers in professional services is

particularly acute across the OECD (e.g. Austria, Germany and Spain). At the same time this

reform offers a large potential payoff, as it can stimulate demand in the short-run (OECD,

2016b). Furthermore, increasing competition in such sectors will positively spill over across

the whole economy, since professional services are inputs for nearly all firms. Other sectors

in need of reform range from retail (e.g. Greece) to network industries (e.g. Turkey) or ports

(e.g. Portugal). In particular, removing policy distortions in services in Japan and Korea would

help boost overall productivity and close the large productivity gaps with leading OECD

countries.

Table 3.9. Recommendations on regulations for domestic and foreign firms

Economy wide regulationsStreamline permits/lincensing/red tape AUS BEL CAN CHL CHN CRI GRC HUN IDN IND IRL ISR LVA POL SVN ZAFIntroduce or expand regulatory impact assessment DEU EU GRC HUN ISR KOR MEX ZAFStrenghten competition and regulatory authorities CRI DNK GRC HUN ISL LVA POL ZAFImprove bankruptcy procedures AUS EST EU ITA POL PRT ZAFImprove competition framework ARG CHL CRI CZE HUN JPNReduce the scope of public ownership CZE DEU NOR NZL POL SVNImprove SOEs governance CRI CZE LVA LTU ZAFSet one stop shops CHN CRI INDFacilitate firm entry MEX POLEnsure country-wide implementation CHNSector specific regulatory burdenProfessional services AUT BEL CAN DEU ESP FRA IRL LVA LUX MEX PRT SVNRetail AUT BEL CAN CZE FIN FRA HUN IRL LUX MEX NORAll network sectors BEL CZE GRC HUN LVA NOR TUR ZAFEnergy CAN EST HUN ISR JPN ZAFBanking CRI IND ISR JPN MEXTransport DEU ESP MEX NORServices BEL DNK EU KORPost DEU JPN NORPorts ESP IRL PRTConstruction FIN DNKTelecommunications DEUBarriers to trade and FDIReduce barriers to trade ARG BRA CHE GRC ISR JPN KOR NOR NZLReduce barriers to FDI ARG CAN CHN EU IDN JPN MEX NZL



Reducing barriers to trade and foreign direct investment (FDI) should also be given

priority, especially in emerging-market countries such as Argentina, Brazil and Indonesia

with large productivity gaps. Greater openness to trade and FDI can unleash productive

potential by raising the scope for cross-borders knowledge diffusion and boosting

competition (Andrews and Cingano, 2012). The participation in Global Value Chains (GVC) –

activities where goods and services cross several borders along different value-added stages –

has allowed lower-income countries to access world demand and advanced technologies

without having to develop an entire industry. Nevertheless, trade within GVCs can magnify

the negative impact of tariff and non-tariff trade barriers (OECD, 2013b). This makes it all the

more important to reduce such barriers in countries where they remain too high. In addition,

enhancing trade facilitation, notably by measures to modernise and simplify customs

procedures, would improve the capacity to export and import high-quality inputs (Moïse and

Sorescu, 2013). Increased exposure to FDI can also encourage integration into GVCs and boost

productivity through technology transfer and the provision of sophisticated inputs.

Recommendations in this area cover both specific sectors where restrictions are a particular

concern and more broadly, the transparency of screening procedures.

Raising the efficiency of R&D and innovation policies

Innovation-related reforms boost productivity both by advancing the technology

frontier (mainly in advanced OECD countries) and by speeding up the adoption of existing

technology (in less advanced OECD and non-member countries). Combined with appropriate

framework policies in the area of education, infrastructure and product market regulations,

reforms of specific innovation policies – including public support measures – could help raise

business expenditure on R&D, an area where performance is highly heterogeneous across

countries (Andrews and Criscuolo, 2013). There is no clear evidence to suggest that higher

aggregate R&D spending per se leads to higher dispersion in household disposable income

for households, even if they may lead to higher wage dispersion (OECD, 2016d). However,

some evidence indicate that the income gains from innovation activities reflected in the

number of patent applications, may be less equally distributed as the income of households

in the lower half of the distribution does not seem to benefit (Causa et al., 2016).

Furthermore, related studies that not only focus on inequality of income, but also on

inequality of opportunities, indicate that promoting innovation is positively correlated with

social mobility. As innovativeness in an economy rises, children become more likely to be

either higher up or lower down in the income distribution than their parents (Aghion et al.,

2015, 2016).

Innovation policies that reduce the productivity dispersion across firms may also

diminish labour income inequality (OECD, 2016d). Results from firm-level data suggest that

more R&D collaboration between universities and firms reduces the productivity gap

between the less productive and most productive firms (Andrews et al., 2015), as R&D

collaboration with universities facilitates technological diffusion by providing smaller firms

with access to sources of knowledge, such as advanced machinery or skilled scientists. Thus,

initiatives to encourage R&D collaboration between universities and firms can make

productivity more inclusive. Specific recommendations to strengthen such collaboration are

made for Australia, Chile, Colombia, Ireland, Estonia, Luxembourg, Portugal and Slovenia

(Table 3.10).

Other recommendations aim at increasing R&D incentives by achieving a better balance

between tax incentives and direct grants, not least to avoid penalizing innovative young



firms which may not benefit from tax incentives (e.g. Czech Republic, Netherlands, Poland,

Portugal and the United-Kingdom); to improve targeting of government support and the

efficiency of indirect measures with a view to encourage firm growth through economies of

scale (Canada); to improve co-ordination of public policies (Costa Rica and Czech Republic);

and to improve links between domestic and foreign firms (Costa Rica and Mexico).

Providing more equal access to high-quality education

Without adequate education and skills, people are unable to access jobs, technological

progress does not translate into economic growth, and countries can no longer compete in

an increasingly knowledge-based global society (OECD, 2012c). Reforms that facilitate the

accumulation of human capital and skills are thus paramount for enhancing long-run living

standards (Cohen and Soto, 2007), and require continued efforts over an extended period of

time. Education has always been an area of fairly active reforms, but changes have often

been incremental, reflecting sometimes the difficulty of implementing comprehensive

reforms. As a result, country-specific priorities in this area are in some cases extended from

one issue of Going for Growth to the next. Those include both reforms aimed at improving the

performance of the education system and those that seek to reduce inequality of educational

opportunities, as the latter may also contribute to lower labour productivity and utilisation

(Stiglitz, 2015).

Policy priorities in education are identified for nearly all countries. However, the

recommendations vary across countries according to the more specific nature of the

weaknesses (Table 3.11). There is a strong focus on primary and secondary education for the

emerging economies but also for a large number of OECD countries. A common challenge

across most countries is to spread education benefits more fairly across society. For that it is

recommended to allocate resources more equitably across socio-economically advantaged

and disadvantaged schools and students (e.g. Germany, the Slovak Republic or United

States), to attract the best teachers to disadvantaged schools (e.g. Belgium and Portugal) and

to target early on additional support to students at risk of leaving the educational system

(e.g. Portugal or Denmark). Postponing early tracking and limiting grade repetition would

also contribute to raising equity in educational outcomes (OECD, 2013c).

A second common challenge is to raise the quality of education. While a lot of progress

has been achieved in terms of enrolment rates, both in OECD countries and in non-OECD

countries, there are still large gaps across countries in terms of quality, as reflected for

example in the latest PISA results. Improving teaching quality is therefore key and this is

reflected in a large number of countries with recommendations in that direction, ranging

from improving teachers training (e.g. Switzerland) to introducing performance-based

remuneration schemes (e.g. India and Costa Rica) or attracting higher performing

Table 3.10. Recommendations on R&D and innovation

Strengthen collaboration between research centers/universities and industry AUS CHL COL CRI EST IRL ISL ITA LUX PRT SVNEvaluate/reform R&D tax credits AUS CAN ISL NZL PRT USAImprove coordination of public policies AUS COL CRI CZE ESTRebalance direct and indirect support GBR IRL NLD POLDevelop technology clusters MEX POLImprove links between domestic and foreign firms CRI MEXIncrease direct and indirect (tax incentives) support GBRIncrease direct support NLDIncrease indirect support CZEMake R&D tax credits refundable for new firms USA



graduates to the teaching profession (e.g. Lithuania) and improving its career prospects

(e.g. Sweden). Reflecting the prevalence of high unemployment among school drop-outs,

some countries (e.g. Spain) are also recommended to boost second chance educational

opportunities. Recommendations aiming at increasing access and ensuring adequate

school resources are formulated in lower-income countries (e.g. India and Indonesia)

Recommendations in the area of tertiary education are more prevalent for OECD

countries, but can be also found in several non-OECD countries (e.g. Colombia, Costa Rica or

Brazil). A common challenge in that area is to improve university responsiveness to labour

market needs. Digitalisation, globalisation, demographic shifts and other changes in work

organisation are constantly reshaping skill needs (OECD, 2016e). Excessive inertia in the

education and training systems, in particular in universities, would translate into people

acquiring obsolete skills and into persistent skill shortages and mismatches, which are

costly for individuals, firms and society in terms of lower wages, productivity and growth.

Flexibility and ability to equip students with job-relevant skills are thus vital and

recommended. For that, curricula should be updated regularly, intelligence about future

skills needs should be developed (e.g. Italy) and fields with high expected demand, such as

engineering or basic science, should be promoted (e.g. Chile). Funding mechanisms can play

an important role in this respect, and it is recommended that the funding formula takes into

account labour market outcomes and needs (e.g. Norway or the Slovak Republic). Better

targeting financial assistance provided to students is also a frequent area of

recommendations. In some cases it is recommended to introduce mean-tested grants

targeted at students from low socio-economic backgrounds (e.g. Switzerland), while other

countries are recommended to introduce or raise tuition charges and, in order to alleviate

their adverse effects on enrolment, combine these with income contingent payback.

Concerning vocational education and training (VET), the pay-off from policy reforms in

this area can be particularly important in the current context. A number of countries are

being advised to expand or enhance the effectiveness of VET so as to address the skill

mismatch and to provide better bridges between education and the labour market. The

potential for a broadly-based increase in the skills level to result in improved well-being and

higher productivity gains can only fully materialise if both workers and firms make best use

Table 3.11. Recommendations on human capital

UniversityImprove responsiveness to labour market needs ARG BRA CHL CHN CRI GRC HUN ITA SWE

Better target financial assitance to students AUT COL CHE CZE ESP

Improve funding formula CHL COL CRI NOR SVK

Improve access and reduce inequalities CHE CHN HUN

Encourage shorter completion times NOR SWE

Increase specialisation ESP

VocationalExpand VET and apprenticeships ARG BRA CHN CRI DNK ESP EST FRA GBR GRC IND ISR LUX POL PRT TUR ZAF

Increase employers involvement CRI CZE GRC ESP EST SVK

Improve alignment with labour market needs CHL ESP LVA PRT SWE

Increase workplace component EST HUN LVA LTU

Encourage SMEs to share apprenticeship places LVA

Provide vocational training earlier in the cursus IND

Update curricula CHL

Harmonise requirements for apprenticeships CAN

Primary and secondaryProvide additionnal support to disadvantaged schools/students BEL CRI CZE DEU DNK FRA HUN ISL ISR LVA NZL POL PRT SVK SWE USA

Improve teaching quality and teachers career prospects/incentives ARG BRA CHE CRI ESP GRC IDN ISL LTU MEX NOR NZL POL PRT SWE ZAF

Postpone early tracking BEL CZE DEU HUN LUX PRT

Improve school accountability and autonomy ISL LUX NOR NZL PRT TUR

Improve access/enrolment BRA CHN IND IDN ZAF

Limit grade repetition BEL DEU LUX PRT

Provide second chance opportunities ESP SVK

Lifelong learning BEL DEU DNK GBR GRC HUN LVA SVK



of these skills. But the growing gap between education qualifications and the actual level of

skills means that using qualifications as a proxy for skills may lead to placing people in the

wrong jobs. As a result, not only can well-designed VET systems improve the overall quality

and equity of secondary and tertiary education systems, they can also be particularly useful

at raising employability among youth and the low-skilled, an attractive property at a time

when several countries face substantial levels of youth unemployment and a need to

encourage requalification and redeployment. For example, increasing participation in

lifelong learning programmes from the low level in Italy to the median level in Estonia is

associated with a 6 percentage point decrease in mismatch (Adalet McGowan and Andrews,

2015). Here again, reducing the skills mismatch requires a combination of policies that

include education but also labour market and product market regulation measures.

Raising the efficiency of taxation

Earlier studies have provided evidence of the impact of the tax structure on economic

growth and inequality, through effects on labour utilisation (discussed above) as well as on

private investment and productivity. While policy recommendations to improve the tax

structure vary depending on country-specific performances and policy weaknesses

(Table 3.12), they often include reductions in labour (see above), or corporate (e.g. Japan and

Norway) income taxation. Reducing statutory corporate income tax rates tends to raise

productivity (Arnold and Schwellnus, 2008) by lifting incentives to invest in innovative

activities and may also increase employment, which could reduce inequality. Policies to

broaden the tax base and reduce tax expenditures are also strongly advocated (e.g. Argentina,

Italy, Japan, Norway and Spain) as a way to reduce distortions, enhancing revenues and

reducing inequality. In the same vein, strengthening tax collection and compliance is

recommended as an effective and equitable way to raise revenues (e.g. Spain, Greece or Italy).

A more growth-friendly tax system can be achieved by shifting the tax burden away

from direct income toward consumption, immovable property and the environment, as

recommended to most countries featuring a priority in the tax area (e.g. Denmark, Estonia,

Germany, Ireland, Latvia and Slovenia). The scope for such reforms may be limited in some

cases, as they may increase inequality. To cautiously address policy trade-offs, the reduction

in direct taxation can be targeted at low-income earners (e.g. Estonia, Germany, Hungary,

Latvia and Turkey). Some countries are also recommended to reduce distortions or

fragmentation in their taxation systems (e.g. Norway and the United States), by aligning the

Table 3.12. Recommendations on tax structure and subsidies

Tax structureBroaden the tax base / reduce tax expenditures ARG AUS AUT CAN COL DEU ESP EST GRC ITA JPN NOR TURShift tax burden to property DEU DNK EST FIN HUN IRL ITA KOR LVA LUX POL SVN SWEShift tax burden to environment CAN CHE COL DEU ESP HUN ITA JPN KOR LVA POLShift tax burden to VAT AUS CAN CHE COL FIN JPN KOR NORImprove tax collection/compliance ESP GRC ITA LVA POLReduce the scope of VAT reduced rates CHE DEU FIN NLD SWEReduce corporate tax rate CAN JPN NOR USAReduce top income tax rates SVN SWE

SubsidiesReduce/reform public support to agriculture CHE EU ISR JPN KOR NOR TURReduce energy subsidies ARG IDN



taxation of different asset classes and in particular by reducing the implicit tax subsidy for

owner-occupied housing or by introducing an integrated nationwide value-added tax (VAT)

system for domestic goods (Brazil).

Reducing agriculture and energy subsidies

Little progress has occurred in 2015-16 towards reducing agricultural subsidies, which

explains why priorities are still present for the European Union, Israel, Japan, Korea, Norway,

Switzerland and Turkey (Table 3.12). Those countries all need to further reduce the level of

producer support, that remains high, and to de-link it from production (especially Japan and

Korea) to mitigate its adverse effects on the efficiency of resource allocation and productivity.

Similar recommendations are made for the European Union, in association with a reduction

in barriers to market access for non-EU countries and of biofuel subsidies. Similarly to

agricultural support, energy subsidies are sometimes used as social policy devices, but they

distort markets and are regressive, wasting resources that could be more effectively targeted

directly at the poor – such as through cash transfers – or at growth-promoting spending.

Reducing such subsidies substantially, replacing them by targeted transfers to low-income

households, remains a priority for Argentina and Indonesia.

Improving the efficiency of public administration and the quality of public services

Reforms to improve the efficiency of government expenditure are expected to boost

productivity performance in the long term. They are also particularly attractive given

unfavourable demographic prospects and the rising spending pressures in areas like health

and education, key areas to improve well-being and equity outcomes. Governments will

increasingly face the challenge of providing adequate public services while containing

budgetary pressures. Enhancing public sector efficiency is especially important in those

countries which have embarked in intensive reform agendas over recent years in order to

achieve an effective and full implementation of reforms. An ineffective public sector can also

lead to resource misallocation in the private sector (Garcia Santana et al., 2016), for example

through arbitrary assignment of public procurement (Adler, 2016). All this explains why

public sector reforms have been gaining momentum over the last years (see Chapter 1), but

further progress in this area is needed.

Reforms to raise overall public sector efficiency cross different areas (Table 3.13). Public

procurement remains the government activity most vulnerable to waste, fraud and

corruption (OECD, 2009). Improving public procurement procedures is therefore crucial in

several OECD countries (Belgium, Czech Republic, Denmark and Hungary). Improving

monitoring mechanisms of public sector performance (e.g. Slovak Republic and Czech

Republic), and human resource management (e.g. Italy and the Slovak Republic) are frequent

recommendations. Some countries need also to bolster the administrative capacity of the

local administration (Poland). An expenditure review, aimed at creating fiscal space to boost

social spending, is recommended for Greece.

A number of public sector recommendations focus also on the healthcare sector, given

the considerable scope to increase cost-efficiency in a number of countries. Reforms in this

area cover hospital efficiency and care management incentives (e.g. New Zealand,

Switzerland) and the promotion of generic drugs (e.g. New Zealand, Lithuania). The

promotion of healthy lifestyle is also advocated for some countries (e.g. Lithuania, New

Zealand), particularly among the poor. Despite major action by the current administration,

the United States still devotes a much larger share of its resources to healthcare than other



OECD countries, which requires continued efforts to identify and implement cost-saving

measures and monitor their impact.

Enhancing the provision and quality of physical infrastructure

The most direct contribution of policy to growth of the whole-economy capital stock

comes from public investment and recent empirical work suggests a large positive effect on

productivity. Solving infrastructure bottlenecks, such as those in transport, can also

contribute to stronger labour utilisation, through enhanced labour mobility, and to better

environment protection, through lower carbon emissions. Considering the post-crisis fall of

government investment as a share of GDP (see Chapter 1) and the current macroeconomic

context, enhancing core public capital, and in particular the capacity and regulation of

infrastructure, is a priority for both member and non-member countries (Table 3.13). This

requires addressing infrastructure shortages in a cost-effective way, in the area of transport

(e.g. Argentina, Costa Rica, Israel, United Kingdom or United States), energy (e.g. Estonia and

Italy) or both (e.g. Latvia and Poland) and education (South Africa). Reforms in this area also

need optimising the use of infrastructure. This can be achieved by price signals such as

congestion charges (United Kingdom) or green taxes (Poland). Infrastructure provisions are

also very low in many emerging economies, and raising public investment should be

accompanied by reforms of the regulatory environment to attract private investment and

optimise use, by reforming land acquisition (India), improving the institutional framework

Table 3.13. Recommendations on public spending efficiency, physicaland legal infrastructure and financial markets

GeneralImprove public procurement procedures BEL CZE DNK HUN ITAImprove human ressources management ITA SVKImprove monitoring and performance evaluation CZE GRC SVKBolster local administrative capacity POLUndertake an expenditure review GRCHealthReinforce/monitor equity in access CHN FIN USAPromote and improve generics drugs use CHE LTUPromote more healthy lifestyles LTU NZLIncrease cost-efficiency NZLIncrease benchmarking of hospital costs CHEIncrease cost-efficiency USAInfrastructureEnhance quality/access/connectivity in transport AUS ARG COL CRI EST EU IDN ISR LVA POL USAEnhance quality/access/connectivity in energy EST EU ITA LVA POLImprove cost-benefit analysis, including of PPPs and concessions ARG COL CRI CZEImprove institutional framework and capacity in relevant ministries and agencies BRA CRI CZE INDRaise public and private investment in infrastructure ITA GBR USAImprove rural infrastructure ARG EST IDNImprove capacity/spending of subnational governments ARG IDNImprove long-term strategy and planning CRI GBREnhance quality/access/connectivity in ports LVAIntroduce user pricing (e.g. in roads) GBRSimplify regulatory approval processes INDRule of lawSustain/reinforce fight against corruption ITA HUN IDN MEXReinforce judiciary ressources/out of court procedures/efficiency ITA GRC IDN MEXImprove legislation CHN ITA MEXPublish enterprise annual reports to reduce scope for fraud CHNStrengthen penalities for unlawful business conduct CHNFinancial marketsReduce state intervention ARG CHNAccelerate resolution of banks non-performing loans ITA PRTEnhance financial literacy CHNEase bank portofolio restrictions IND



and capacity in relevant government agencies (e.g. Costa Rica and Brazil), enhancing long-

term planning (e.g. Costa Rica) and promoting PPPs based on ex-ante cost-benefit analysis

and balanced risk sharing (e.g. Argentina and Colombia).

Strengthening the rule of law

Not only physical but also legal infrastructure bottlenecks hamper productivity, both in

emerging-market countries and in some OECD countries. An inefficient judicial system can

also act as a significant impediment to full implementation of structural reforms (OECD,

2015c). A well-enforced rule of law is thus essential for growth (Acemoglu et al., 2001) and

this is reflected in different mechanisms on which reform priorities need to be addressed for

some countries (Table 3.13). Streamlining the court system and enhancing the monitoring of

court performance (e.g. Italy) would make judicial systems more agile and responsive.

Implementing out-of-court settlement mechanisms (e.g. Greece and Italy), such as

mediation, would help to reduce delays and backload of cases. Using more e-justice tools

(Greece), moving from written to oral trials (Mexico), and increasing courts specialisation

(Greece and Italy), would also contribute to quicker resolutions and stronger contract

enforcement. Lastly, it is also important that legislation remains clear and unambiguous

(Italy) and that legislation reforms are enacted and implemented (Mexico).

Reducing corruption and improving trust in government institutions, which has

recently deteriorated in several OECD countries (OECD, 2015d), must also remain a priority, as

it would help governments to implement structural reforms, in particular those bringing

long-term benefits (OECD, 2013c). Corruption and crony capitalism are also conducive to

resource misallocation and low productivity (Garcia Santana et al., 2016). Consequently, it is

recommended to establish or reinforce dedicated anti-corruption agencies (e.g. Hungary,

Indonesia, Italy and Mexico). China would also benefit from actions to fight unlawful

business conducts, such as strengthening penalties or making annual enterprise reports

publicly available.

Reforming financial market regulations

Financial market reform has generally not featured prominently among country-

specific priorities, owing to the particular need for strong international co-ordination in this

area. There are nonetheless specific idiosyncratic cases where financial reform priorities

feature in Going for Growth. An area where urgent policy action is required concerns the high

level of non-performing loans in Portugal and Italy, which is hindering private investment

and growth (Table 3.13). Accelerating the resolution of non-performing loans, including by

developing markets for distressed debt securities (e.g. Portugal) and improving insolvency

procedures, would contribute to restore credit growth and would allow banks to focus on

new lending and on reallocating capital to new and more productive firms.

In some emerging-market economies, basic financial-sector liberalisation is needed to

sustain high growth, including in China, where bank credit is not fully allocated by the

market. In the same vein, a more efficient functioning of financial markets in Argentina

would contribute to reallocating resources towards more productive activities. However, in

order to deliver their full benefits, such liberalisations should be gradual and accompanied

by strong prudential regulation. In China interest rates have fully been liberalised, with the

exception of some policy rates, but, to further enhance risk pricing by financial markets,

implicit state guarantees to public entities should be removed. Internet finance regulation

has been strengthened, but illegal fundraising activities and defaults by peer-to-peer



financial service providers have become widespread. Thus financial literacy should be also

enhanced through financial education from an early age. Overall striking a better balance

between liberalisation and regulation in financial markets, would allow for better pricing of

risk and contribute to lower the adverse impact on inequality of the financial sector (Denk

and Cournède, 2015).

Notes

1. For some of these countries, high productivity is the result of the relatively low share of lower skilledworkers in the labour force. Consequently, improvements in labour utilisation may not generateone-for-one gains in GDP per capita (see Boulhol, 2009).

2. See Bourlès et al., (2010) on OECD countries and Bas and Causa (2012) for evidence on China.

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